Government and the Economic History of American Income Inequality

Abstract

In the present paper, I intend to question the broad "U-Curve Narrative" of income inequality in the United States. First, I argue that a part of the rise of inequality in recent decades is overestimated but that it did nonetheless increase. Second, I argue that a part of that increase in inequality is not problematic in a normative sense as it results from mundane factors like population aging, immigration, innovation and the rise of increasingly heterogeneous preferences that cause a mild divorce between well-being and income. However, by arguing that a share of the increase stems from non-problematic causes, I must also argue that the remaining share emanates from reprehensible factors. These either come from those inherited at birth and those created by government intervention. This decomposition of inequality brings me to the third argument of this paper: that the high levels of the 19th century and early 20th century were not as problematic as emphasized by many and that the subsequent decline was largely led by mundane forces unrelated to government efforts whose role should be minimized. I also argue that the rise of inequality after 1970 is strongly related to state interventions in markets and societies.

Keywords: Inequality, Living Standards, Public Chocie

JEL Classification: D63, I3, I32